Question: In 2008 (year 0), Mrs. L exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at

In 2008 (year 0), Mrs. L exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at date of exercise was $312 per share. In 2015, she sold the 225 shares for $480 per share. Assuming that Mrs. L is in the 35 percent tax bracket, has a 15 percent capital gains rate, and uses a 6 percent discount rate, compute the 2008 NPV of the cash flows from the exercise and sale if:
a. The stock option was nonqualified.
b. The stock option was an ISO.

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